SIWG-presentation

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.center[.large[
**The Limits of Market-Making**]]

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*SIWG Presentation <br> Florence - 15 March 2023*]

.center[<strong>
Luuk Schmitz </strong> (European University Institute)]
]

.small[
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[www.luukschmitz.com](https://www.luukschmitz.com) | <svg aria-hidden="true" role="img" viewBox="0 0 512 512" style="height:1em;width:1em;vertical-align:-0.125em;margin-left:auto;margin-right:auto;font-size:inherit;fill:#1D9BF0;overflow:visible;position:relative;"><path d="M459.37 151.716c.325 4.548.325 9.097.325 13.645 0 138.72-105.583 298.558-298.558 298.558-59.452 0-114.68-17.219-161.137-47.106 8.447.974 16.568 1.299 25.34 1.299 49.055 0 94.213-16.568 130.274-44.832-46.132-.975-84.792-31.188-98.112-72.772 6.498.974 12.995 1.624 19.818 1.624 9.421 0 18.843-1.3 27.614-3.573-48.081-9.747-84.143-51.98-84.143-102.985v-1.299c13.969 7.797 30.214 12.67 47.431 13.319-28.264-18.843-46.781-51.005-46.781-87.391 0-19.492 5.197-37.36 14.294-52.954 51.655 63.675 129.3 105.258 216.365 109.807-1.624-7.797-2.599-15.918-2.599-24.04 0-57.828 46.782-104.934 104.934-104.934 30.213 0 57.502 12.67 76.67 33.137 23.715-4.548 46.456-13.32 66.599-25.34-7.798 24.366-24.366 44.833-46.132 57.827 21.117-2.273 41.584-8.122 60.426-16.243-14.292 20.791-32.161 39.308-52.628 54.253z"/></svg> [@Luukschmitz](https://twitter.com/Luukschmitz) | <svg aria-hidden="true" role="img" viewBox="0 0 448 512" style="height:1em;width:0.88em;vertical-align:-0.125em;margin-left:auto;margin-right:auto;font-size:inherit;fill:#5D50E7;overflow:visible;position:relative;"><path d="M433 179.11c0-97.2-63.71-125.7-63.71-125.7-62.52-28.7-228.56-28.4-290.48 0 0 0-63.72 28.5-63.72 125.7 0 115.7-6.6 259.4 105.63 289.1 40.51 10.7 75.32 13 103.33 11.4 50.81-2.8 79.32-18.1 79.32-18.1l-1.7-36.9s-36.31 11.4-77.12 10.1c-40.41-1.4-83-4.4-89.63-54a102.54 102.54 0 0 1-.9-13.9c85.63 20.9 158.65 9.1 178.75 6.7 56.12-6.7 105-41.3 111.23-72.9 9.8-49.8 9-121.5 9-121.5zm-75.12 125.2h-46.63v-114.2c0-49.7-64-51.6-64 6.9v62.5h-46.33V197c0-58.5-64-56.6-64-6.9v114.2H90.19c0-122.1-5.2-147.9 18.41-175 25.9-28.9 79.82-30.8 103.83 6.1l11.6 19.5 11.6-19.5c24.11-37.1 78.12-34.8 103.83-6.1 23.71 27.3 18.4 53 18.4 175z"/></svg> [@luukschmitz@mastodon.online](https://mastodon.online/@luukschmitz)]]

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<br>

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>‘One thing will **definitely not occur** […]: **a repetition of subsidizing industrial policies** which have already failed in the individual countries’ (Martin Bangemann, 1992: 19)

<br>

>‘In the end, the **supporters** of an [EU] **industrial policy** were effectively **beaten back**’ (Leon Brittan, 2000)

<br>

>‘If Europe still wants to be a manufacturing powerhouse in 2030, **we need a genuine European industrial policy**. […] it’s what will give Europe its **economic sovereignty** and **independence.**’ (BMWE & MEDF 2019)

<br>

>‘After the “Europe of democracy” and the “Europe of the market”, let us now pave the way for a “**Europe of power**”’ (Thierry Breton, 2022)

<br>

>‘You cannot fall in love with the single market’ (Jaques Delors, 1989: 5)

]

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name: part1
class: inverse, center, middle

## EU Industrial Policy: After Market Making

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## The argument

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**What explains the emergence of statist policies in a polity that is made up of anti-statist institutions?**

- Changed global context has exposed the limits of market-making

- A fear of falling behind triggers episodes of industrial policymaking

- Scope of response determined by political dilemmas and institutional capacity

]]

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.pull-right[

]]

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## Four contributions

.pull-left[

- The role of the state in the design and direction of markets in the 21st century

- The centrality of global dynamics for the European project

- Institutional change in Europe

- The politics of EU industrial policy

]

.pull-right[

<img src="data:image/png;base64,#fork.png" width="90%" style="display: block; margin: auto;" />
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---
name: part2
class: inverse, center, middle

# What are the limits of market-making?

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## Geopolitics

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The reliance on open markets only goes as high as the lowest common denominator

Two trends:

1. Increase in subsidies and trade restrictions since 2008

2. Supply-chain disruptions since the Covid-19 pandemic

> ‘While our global industrial competitors get billions in subsidies, our bureaucracy is led by political leaders – Mr Almunia is a political leader – who have not understood that the world has changed. It is like Rome surrounded by the barbarians. We all await the fall of Rome. It’s not funny’. (Arnaud Montebourg, 2014)

**It has led to the fusion of economic interest and national security**
]]

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<img src="data:image/png;base64,#economist.png" width="65%" style="display: block; margin: auto;" />
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## Twin Transitions

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Increased attention of two key market failures:

1. The lack of progress in digitalization, innovation, and cutting edge technologies

2. Structural inability of markets to unwind highly profitable but polluting lines of business

**It has led to an expansion of what can be seen as market failure**
]

.pull-right[
>‘Leading the twin transition in this changing world is the driving force of this Commission. This is our generational task and opportunity’ (Ursula von der Leyen, 2020)

<img src="data:image/png;base64,#tech.png" width="95%" style="display: block; margin: auto;" />
]

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## Constraining macro-economic governance

Long-term changes (energy markets, digitalization, possible reshoring/nearshoring, demographic ageing) all call for massive public investment.

Until recently, macro-economic governance in the EU was not conducive for any such ambition.

On the contrary, the micro-management of business activity and reallocation of resources between economic sectors (i.e. industrial policy) was pacified with disciplinary state aid & fiscal rules.

<br>

Nowadays, we see a **repoliticization of micro-management**, and a turn to **more conducive macro-economic governance**.

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# Three dilemmas of supranational economic governance

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## Redistribution-Efficiency

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Achieving short-term aims versus long-term economic goals

But possible without distorting the single market or not?
]

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<img src="data:image/png;base64,#Rplot.svg" width="95%" style="display: block; margin: auto;" />
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## Competence-Control

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## Inward/outward-looking

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Not all demands for support are created equally. Significant conflict exists between business, interest groups, and member states; specifically:

- A rift between demand for inward and outward-looking measures

- 'Neoliberal' versus 'neo-mercantilist' actors]

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<img src="data:image/png;base64,#jcms13428-fig-0001-m.jpg" width="90%" style="display: block; margin: auto;" />
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## Conclusion: the growing pains of an EU industrial policy

A remarkable turnaround in the direction of EU economic governance has unfolded

- This is based on a changing world and a fear of falling behind

Industrial policy is becoming *supranational* and *market-directing*

Measures take a conspicuous shape by relying on unused treaty flexibility, due to:

- Limits of administrative capacity

- Politicization of a more full-fledged EU industrial policy

Policies lack political legitimacy, but Eurosceptic countries hold the keys (arguably)

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## Thank You!